Tung Chee-hwa said yesterday he did not want to see property prices drop further because it would dampen economic recovery and the incentive to buy.

Fear of falling prices, not pressure from developers, prompted the decision to suspend Home Ownership Scheme flat sales, he said at yesterday's Legco question and answer session.

Expressing optimism about the medium-term economic forecast, Mr Tung said the plunge in property prices since April prompted the Government to act to stabilise the market. He attributed the fall to the effects of the six interest-rate rises within a year in the United States and the historic high supply of subsidised housing this year.

"We don't want to see prices slip further. This will affect consumption and affect the economic recovery," he said.

But Mr Tung shrugged off charges by Democrat Lee Wing-tat that the decision to convert Home Ownership Scheme flats to public rental housing was prompted by Mr Ho. "I have not spoken to Mr Ho. Perhaps he has written to me. But I receive many letters each day. It is very unfair to force me to accept that I do all this because Mr Ho has written to me," Mr Tung said. "What we have done was due to our concern over negative asset values and the effect on economic recovery if prices slip further."

He said the rental move would cut the waiting time for public housing from seven to three years by 2003, but would not say if the 70 per cent mortgage ratio should be lifted, saying that was for the banking sector to consider.

In his opening remarks, the Chief Executive painted a rosy picture of the economy despite uncertainties arising from the interest rate and the dollar. Mr Tung remained optimistic of sustained growth, with tourist figures reaching 12 million this year and a high office occupancy pick-up rate of five million square feet.

The Liberal Party doubted the Home Ownership Scheme was worth preserving. Vice-chairwoman Selina Chow Liang Shuk-yee said: "It might be much more cost-effective for the Government to fund the public to buy a flat rather than running the scheme."

Mrs Chow said the party was planning discussions with Secretary for Planning, Environment and Lands Gordon Siu Kwing-chue, the Monetary Authority and the Hong Kong Association of Banks. She also proposed the setting up of a centralised body to monitor the property market.